Mike Ashley, who owns 70% of Frasers Group (LSE:FRAS) — a member of the FTSE 100 — is no stranger to being unpopular.
When he was chairman of Newcastle United, he was voted one of the 30 most hated men in football. In 2016, a committee of MPs accused him of running Sports Direct like a “Victorian workhouse”. And three years ago, during his time as chief executive of Frasers, he faced a shareholder rebellion over concerns about the way in which he was running the group.
Perhaps Ashley himself is the reason for Frasers being so unpopular? In March, it ranked 98th on the list of the FTSE 100’s most traded stocks. In terms of the value of shares traded, only Pershing Square Holdings and Airtel Africa were lower.
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With 70% of the stock controlled by one individual, there will inevitably be fewer trades placed. But I still think the company is unloved, and I’m embracing my position as a happy shareholder.
Performance
When Frasers released its results for the six months to 23 October 2022, they showed a 13% rise in revenue and a 53% increase in profit before tax, compared to a year earlier. However, over the next three trading days, its share price tumbled by 16%.
But the company has been a British success story. Bucking the trend towards online shopping, Frasers has been investing in high-street brands. Its share price has doubled over the past five years and is up 10% since the start of the year.
In its last full year of trading, the company was profitable across all its operating divisions. Despite having a reputation for heavily discounting products, its margins were also healthy.
| Results by division (52 weeks to 24.4.22) | Principal brands | Revenue (£m) | Gross profit (£m) | Gross margin (%) | Operating profit (£m) |
| UK Sports Retail | Sports Direct, GAME and Evans Cycles | 2,640 | 1,137 | 43.1 | 289 |
| Premium Lifestyle | House of Fraser, Jack Wills and sofa.com | 1,057 | 475 | 44.9 | 124 |
| European Retail | Sports Direct and GAME | 790 | 337 | 42.7 | 110 |
| Rest of the World Retail | Bob’s Stores and Eastern Mountain | 150 | 77 | 51.0 | 34 |
| Wholesale and licensing | Slazenger, Everlast and Lonsdale | 168 | 63 | 37.5 | 7 |
| Combined | 4,805 | 2,089 | 43.5 | 564 |
What the critics say
But the company’s price-to-earnings (P/E) ratio is close to 15. This compares unfavourably to JD Sports (13.2) and Next (11.3), two other non-food retailers in the FTSE 100.
Critics of Frasers will also point out that the company last paid a dividend in 2009. The company prefers to retain its cash to fund acquisitions. But I don’t have a problem with this. In my view, significant earnings growth is only going to come from buying other companies and brands.
Concerns would also appear to exist that the company has too much of a physical presence in our towns and cities. The company operates over 1,500 stores throughout Europe. Even Mike Ashley has admitted that the internet is “killing” the high street. Ashley has called for an online sales tax, free parking and rates relief to arrest the decline.
Also, the company has never established itself as a permanent member of the FTSE 100. It’s currently the 98th largest member of the index — with a market cap of £3.66bn — and therefore runs the risk of being demoted to the FTSE 250 at the next reshuffle. Some funds are only permitted to invest in the the UK’s largest 100 companies. Relegation from the Footsie could affect its share price.
Out of fashion
It’s not very fashionable to admit to owning shares in Frasers, but I do.
If the chief executive of the group — who happens to be Mike Ashley’s son-in-law — can get the share price to £15 by October 2025, he’ll receive a £100m bonus. I’m therefore certain that the management team is focused on delivering the growth that all shareholders, including me, are keen to see.
